Los Angeles Business Journal

Innovative Solutions Needed to Fix L.A.’s Budget

L.A. should follow Chicago's lead on public-private partnerships

It is no secret that economic conditions are tough, and the City of Los Angeles is certainly feeling the pinch. The city is facing a $450 million budget deficit and, according to Mayor Antonio Villaraigosa, massive city layoffs may be necessary. In an encouraging sign, however, the mayor recently indicated that the city will be considering innovative budget solutions, such as turning to public-private partnerships to save money operating the Los Angeles Zoo and the L.A. Convention Center.

With a significant budget deficit and more difficult economic times ahead, implementing public-private partnerships is going to be an essential part of any long-term budget solution. Looking to the private sector to operate the zoo and convention center should just be the start.

State and local governments across the country are increasingly recognizing the value in partnering with private-sector vendors to provide better, more cost-effective services to taxpayers.

Municipal governments have assets they may not have given a second thought to that are ripe for these partnerships. Chicago Mayor Richard Daley, a Democrat, recently announced a 75-year lease of the city’s downtown parking meter system. In exchange for an upfront payment of $1.16 billion, Chicago Parking Meter LLC—a consortium led by Morgan Stanley Infrastructure Partners—will maintain the city’s downtown parking meters, be responsible for collections, and implement technology upgrades to allow for both cash and cashless payments at the meters. The city will continue to write tickets, and retains the right to change the number of meters and their hours of operation.

“This is the best thing that has happened for us in regards to getting out of this business,” said Mr. Daley. “This is not the core business of the City of Chicago.”

Given the similar sizes of the two cities’ parking meter systems—L.A. has roughly 40,000 parking meters generating approximately $20 million in annual revenue, compared to Chicago’s over 36,000 meters and $19 million in revenue—this would appear to be a great opportunity for Los Angeles, and the city could reasonably expect a similar price for such a lease.

Mayor Daley is providing an excellent blueprint for Mayor Villaraigosa. Chicago recently negotiated long-term public-private partnership leases for several downtown parking garages that will bring the city over $563 million. A few years ago, Daley leased the Chicago Skyway, a 7.8 mile toll road, and got an upfront payment of $1.8 billion for the city. And now Chicago is in the process of leasing Midway International Airport for $2.5 billion.

Mr. Villaraigosa should look at all of the options. The question should not be, “What services can be contracted out?” but rather “What services can’t be contracted?”

It’s time for Los Angeles’ leaders to differentiate between the “core” services that government provides, and the services that are more commercial in nature. Providing public safety through sworn police officers, for example, would be considered a core government function. Janitorial services, cutting the grass at city buildings, operating golf courses, and providing IT technical support are not core functions.

Public-private partnerships are a means of providing better services at lower costs, but they are not a panacea. If those cost savings are simply frittered away on other parts of the government, not much has been accomplished. During this recession, taxpayers and consumers have been forced to cut back. It is time the government scaled back as well.

Mr. Villaraigosa’s move towards partnering with the private sector is much-needed and should be applauded. The mayor should ask all of his department heads to use the “Yellow Pages” test: if companies listed in the Yellow Pages are providing the same services as the government, the government should not be in those businesses in the first place.

Adam B. Summers is a policy analyst at Reason Foundation, a nonprofit think tank based in Los Angeles.